A small keepsake-type gift is usually what I've seen. A nice rosary or other religion-specific item, or maybe a portrait of the kiddo in their baptismal gown/robe, or some other special item, possibly something they could pass on to one of their children someday (we did a really nice pewter plate and cup for one of our godchildren, he still has them, and has always said he can't wait until he can pass it on)..
No toys, unless it's something like a silver-plate rattle.
Or, you could do something practical, like a savings bond, start a college fund for them, or similar monetary gift in their name.
Maybe throw in a dinner for the parents.
Also, the wife and I are godparents to two different kids (well, both are in their 20's now, so I guess they aren't "kids" anymore...). We always sent or gave a small gift on the anniversary of the baptism, until they turned 21.
One asked where his gift was when he was 22, saying he always liked those little "surprises". They were small gifts - toys when they were little, a nice engraved keychain when they turned 16, a camera, a small amount of money (like 20 or 50 dollars in a card when they were a little older) stuff like that..